Weekly Wrap

Pair Strategy
Long Axis Bank & Short ICICI Bank
Over the past one month, a sell-off in the rate sensitive sector (banks) has resulted in a breakdown in the co-relation between Axis Bank and ICICI Bank, thus widening the historical price ratio relationship close to Upper Band 2 at 0.90* (mean+2nd standard deviation). One year co-relation between Axis Bank and ICICI Bank is above 88% (strong co-relation), while standard deviation at 0.021 is healthy. We believe this deviation from mean is temporary and expect ratio to revert back to its mean We recommend traders to go long on Axis Bank (1 Lot August futures) and short ICICI Bank (1 lot August futures) at price ratio of 0.89-0.90 with Stop loss placed at 0.94 for target of 0.83.
Recommedation* Long Axis Bank (Aug Fut) Short ICICI Bank (Aug Futs) Spread Summary Last Mean Off Mean Median Standard Dev Spread Summary Correlation Price 1043.35 941.35 1-Year 0.902 0.794 0.108 0.786 0.021 1-Year 0.89 Qty 250 250 60 Days 0.902 0.794 0.108 0.786 0.021 60 Days 0.95 Fut lots 1 1 21 Days 0.902 0.796 0.106 0.793 0.017 21 Days 0.72

July 20, 2012

*~Outlflow(`0.8lacs), Time horizon - 30days, Expected return 5%

Absolute spread and price ratio - Axis vs ICICI

(50) (100) (150) (200) (250) (300) (350) 19-Jul Spread (Rs) (LHS) Ratio (x) 1.0 0.9 0.8 0.7 0.6 0.5 0.4 0.3 0.2 0.1 18-Sep 18-Nov 18-Jan 19-Mar 19-May 0.0 19-Jul

Price ratio at 1yr high (Mean + 2Std Dev)

Ratio (X) UB (2) Price ratio Mean LB (2) UB (1) UB (3) LB (1) LB (3)

1.00 0.95 0.90 0.85 0.80 0.75 0.70 0.65

0.60 19-Jul

18-Oct

17-Jan

17-Apr

17-Jul

Source: India Infoline Research

Source: India Infoline Research

Axis has underperformed vis--vis ICICI

0.10 0.00 -0.10 -0.20 -0.30 -0.40 Axis Bank ICICI Bank

Maximum occurrence between 0.77 - 0.8

0.7-0.73 0.73-0.77 0.77-0.8 0.8-0.84 0.84-0.87 0.87-0.91 10 17 28 Distribution of price ratio (%)

13 33

-0.50 19-Jul

28-Sep

8-Dec

17-Feb

28-Apr

8-Jul

0.91-0.95

Source: India Infoline Research

Source: India Infoline Research

India Infoline Weekly Wrap

Market Outlook
Indian markets declined for the second week running, as investors digested a spate of corporate earnings even as they wait for the Government to introduce important reforms. The results were pretty mixed. Except for Infosys, there hasnt been any major negative surprise so far. The persistent deficit in the southwest monsoon rainfall is the biggest overhang for the Indian market apart from lack of progress on reforms. Sticky inflation and widening twin deficits are among the other negatives for the Indian economy. FII flows have stayed positive this month on hope that the UPA will initiate a few key reforms before the start of the monsoon session of parliament on August 8. Markets will be disappointed if the expected reforms do not come through. Global equities have held up quite well lately as central banks have swung into action to boost economic growth. Expectations of further monetary stimulus from the US and Chinese central banks also remain in place amid mixed economic statistics. One problematic area is the resurgence in commodity prices, especially that of crude oil.

Technical View
Markets extended the selling streak for second week after it failed to surpass the resistance of 5260 levels on a closing basis. The falling gap appearing between 5260-5312 has been acting as major headwind in the near term with price action most of time turning into indecisive mode. On the daily chart hammer appearing on Wednesday trading has so far not negated the low of 5169 which raises a probability to retesting levels of 5260 once again.

F&O View
Long rollover was seen in Bank nifty which rolled almost 30%, while rollover in Nifty stood at 16%. Highest open interest in nifty for august series stood at 5300call and 5000put. Call writing is visible in July 5200 call at an average price of `50, the break even for the call writers is at 5250 which would act as resistance for current expiry, while put unwinding by short was seen at 5200 strike . Nifty range for week would be 5120-5270.

FIIs/MFs activity
4,300 3,800 3,300 2,800 2,300 1,800 1,300 800 300 (200)
25-Jun 26-Jun 27-Jun 28-Jun 10-Jul 11-Jul 12-Jul 13-Jul 16-Jul 17-Jul 18-Jul

Advance/Decline
Net FIIs inflow Net MFs Inflows

(Rs cr)

2,500 2,000 1,500 1,000 500 0

(No of stocks)

Advance

Decline

Global performance
Hangseng Nasdaq Dow Jones Sensex Nifty Nikkei Shanghai (0.3) (0.4) (0.6) (0.8) (0.5) 0.5 1.5 2.5 3.5 1.3 2.0 2.9

Sectoral performance
BSE Pharma BSE FMCG BSE Metal BSE Oil & Gas BSE-200 BSE IT BSE Small-Cap BSE Cap Goods BSE Bank BSE Power BSE Auto BSE Realty (2.5) -3.0 -2.5 -2.0 -1.5 -1.0 -0.5 0.0 0.5 1.0 1.5 (1.6) (1.6) (0.9) (1.1) (1.2) (0.5) (0.7) (0.0) 0.8 0.6 0.3

(1.5)

25-Jun 26-Jun 27-Jun 28-Jun 29-Jun 2-Jul 3-Jul 4-Jul 5-Jul 6-Jul 9-Jul 10-Jul 11-Jul 12-Jul 13-Jul 16-Jul 17-Jul 18-Jul 19-Jul

(700)
2-Jul 3-Jul 4-Jul 5-Jul 6-Jul 9-Jul

India Infoline Weekly Wrap

Technical Check
Nifty 50 & CNX 500 top 10 gainers
NSE Nifty Company Bajaj Auto Cairn India Hero Motocorp JP Associates ONGC HUL HDFC Cipla Sun Pharma SAIL CMP (`) 1,592 327 2,082 78 282 446 685 326 625 93 % Chg Company 5.3 Shanthi Gears 4.9 Cadila Health 2.2 Atul 1.9 Jb Chem 1.4 Chola Fin 1.1 Sundaram Fin 0.9 Balaji Telefilms 0.2 KCP 0.2 Mastek 0.1 SRF CNX 500 CMP (`) 67 881 264 72 204 730 43 35 116 240 % Chg 16.3 15.2 12.8 11.9 11.2 11.0 10.8 9.3 9.1 7.9 Company Infosys RCOM Tata Motors Kotak Bank Reliance Cap Jindal S&P Reliance Infra PNB Siemens Maruti Suzuki

Nifty 50 & CNX 500 top 10 Losers

NSE Nifty CMP (`) 2,219 64 223 563 352 427 526 819 686 1,148 % Chg Company (10.2) Sterling Bio (9.8) Ind-Swift Lab (7.5) Arss Infra (7.3) DCHL (5.9) Tourism Fin (5.7) HSIL (5.3) Infosys (5.1) Union Bank (4.7) RCOM (4.6) Essel Propack CNX 500 CMP (`) 8 44 43 26 23 138 2,219 192 64 31 % Chg (18.4) (13.0) (12.9) (12.2) (12.1) (10.7) (10.2) (9.8) (9.8) (9.5)

Technically strong
CMP (`) 341 311 530 229 53 10 days Moving Average (`) 347 316 537 232 54 Total Traded Qty (lacs) 1.0 1.0 1.1 11.3 14.9 10 days Average Traded Qty (lacs) 0.8 1.0 0.8 3.2 5.2

Technically weak
10 days Moving Average (`) 3,685 695 123 158 303 Total Traded Qty (lacs) 0.7 3.3 3.5 0.9 0.1 10 days Average Traded Qty (lacs) 0.1 3.0 0.8 0.5 0.1

Company HPCL Century Textile Bombay Dyeing BHEL JSW Energy

Company Asian Paints JSW Steel United Phos Opto Circuit CESC

CMP (`) 3,724 704 124 161 309

Bulk deals
Date 16-Jul 19-Jul Institution HSBC Invst Fund MANULIFE GLOBAL FD- ASIAN EQ FD Scrip name Ashapura Minechem Ltd HDIL B/S S S Qty (lacs) 6.1 24.3 Price 14.0 84.7 -

Book closure and record date

Company EIH Hotels Tata Power RPG Life Science Apollo Hospitals Orient Paper Cadila Healthcare Date 24 Jul 2012 24 Jul 2012 24 Jul 2012 26 Jul 2012 26 Jul 2012 26 Jul 2012 Purpose Dividend Dividend Dividend Dividend Dividend Dividend

Nifty Future VWAP

5380 5360 5340 5320 5300 5280 5260 5240 5220 5200
29-Jun 2-Jul 3-Jul 4-Jul 5-Jul 6-Jul 9-Jul 10-Jul 11-Jul 12-Jul 13-Jul 16-Jul 17-Jul 18-Jul 19-Jul 20-Jul

Bank Nifty Future VWAP

Nifty Vwap
10800 10700 10600 10500 10400 10300 10200 10100
29-Jun 2-Jul 3-Jul 4-Jul 5-Jul 6-Jul 9-Jul 10-Jul 11-Jul 12-Jul 13-Jul 16-Jul 17-Jul 18-Jul 19-Jul 20-Jul

Nifty Futs Close

Bank Nifty Futs Close

Bank Nifty Vwap

India Infoline Weekly Wrap

Commodity Corner
Base metals
Industrial metals traded on a mixed note this week, with Aluminium and Lead registering decent upside, while the rest of the metals were restricted to marginal gains. Base metals garnered support from the wide speculation that Chinese government is poised to initiate further monetary stimulus and recent reports of stable growth in domestic bank loans. On supply front, around 500 contract workers at three of world No. 1 copper producer Codelco's massive northern deposits are poised to strike, but Codelco stated the unrest won't affect mine output. We remain skeptical regarding the recent knee-jerk reaction in base metal prices to the growing expectations of further monetary easing by China. It reminds us of the clich, wherein one puts the cart ahead of the horses rather than putting horses ahead of the cart. We suggest that monetary easing on a standalone basis will not be able to stimulate economic growth in China, as the countrys biggest export partner (Europe) is mired in a recession. Exports constitute a major component of Chinese economic growth. On price front, LME copper prices have failed to surpass the redundant barrier of US$7,800/ton on a closing basis, which implies that therein lays a possibility of prices rebounding back from current levels.

Precious metals
Gold prices underperformed this week, considering the sizeable gains witnessed in energy and moderate gains in industrial metals. Gold prices are surprisingly trading in the confined range of US$1,550-1,600/ounce in spite of the fact that the events which transpired during the week were theoretically congenial for the yellow metal to move higher. In this regard, U.S Federal Reserve Chairman Bernanke offered a gloomy view of the economy's prospects, but provided few clues on the fresh round of monetary easing measures. Bernanke stated that the pace of the US economic recovery has been unstable, adding that growth is slowing, largely impacted by the European crisis and the prospect of fiscal tightening in the US. He also referred that developments in the labour markets remain frustratingly slow. Market participants remain disappointed by the fact that Bernanke did not offer any immediate indication of initiating another round of quantitative easing. However, there still looms a strong probability of quantitative easing in the medium term. Fed Chairmans downbeat assessment of economic growth implies that monetary easing would take place sooner rather than later, as the central bank conveyed that it is ready to take further action in order to promote a stronger economic recovery. In addition, Gold bulls may seek encouragement from the recent flow of US macro numbers, which were mostly on the weaker side.

Note: This market commentary is written at 12:30 PM IST

LME prices
Base Metals (US$/ton) Copper Nickel Zinc Aluminium Lead Precious Metals (US$/ounce) Spot Gold Spot Silver * Last Traded Price High 7,813 16,330 1,900 1,946 1,930 High 1,599 28 Low 7,530 15,800 1,842 1,880 1,854 Low 1,566 27 LTP* 7,712 16,070 1,864 1,932 1,913 LTP* 1,585 27 Chg(%) 0.2 (0.5) (0.5) 1.2 1.8 Chg(%) (0.3) (0.3)

Weekly inventory update

Tons Copper (LME) Nickel (LME) Zinc (LME) Aluminium (LME) Lead (LME) Tin (LME) Shanghai Copper Shanghai Zinc Shanghai Aluminium 253,225 110,658 1,015,075 4,832,425 338,325 11,715 160,973 327,529 313,085 Abs Chg. 1,550 4,896 34,075 28,950 (6,250) (385) 45 (1,677) 8,372 Chg (%) 0.6 4.6 3.5 0.6 (1.8) (3.2) 0.0 (0.5) 2.7

LME Copper
10500 10000 9500 9000 8500 8000 7500 7000 6500 6000
Jan-12 Mar-10 Mar-11 Mar-12 Jan-10 Jan-11 May-11 May-12 May-10 Jul-10 Jul-11 Nov-10 Sep-10 Nov-11 Sep-11 Jul-12

COMEX Gold
Copper (LME)
2000 US$/ ounce Gold

US$/ ton

1750

1500

1250

Jan-10

Mar-10

Jan-11

Mar-11

Jan-12

May-10

May-11

Mar-12

May-12

Jul-10

Jul-11

Nov-10

Nov-11

Sep-10

Sep-11

Jul-12

5500

1000

India Infoline Weekly Wrap

Mutual Fund Round-up
India Infoline picks
Mutual Funds HDFC Top 200(G) ICICI Pru Dynamic(G) IDFC Sterling Equity(G) Fidelity Tax Advt(G) HDFC Prudence(G) Reliance Equity Oppor-Ret(G) IDFC Premier Equity-A(G) Assets (` Cr) 10,692 4,130 1,061 1,203 6,356 3,193 2,345 NAV (`) 199.6 105.9 18.7 20.9 215.0 37.9 33.2 Absolute return (%) as on July 20, 2012 1wk (0.2) 1.0 (0.3) 0.2 (0.3) 0.0 (0.9) 1mth 3.9 3.8 4.4 3.2 3.3 5.7 3.2 3mth (2.0) 0.5 (2.9) (1.8) (1.8) 0.3 (2.9) 6mth 7.1 8.5 16.3 5.7 8.4 15.1 8.7 1yr (6.1) (2.8) (3.1) (5.8) (2.1) 1.0 (0.8) 2yr 0.6 5.0 3.7 (0.9) 6.9 9.2 6.9 3yr 34.4 48.7 66.5 43.3 56.1 86.5 65.9 5yr 58.1 44.4 39.6 66.0 56.6 86.9

Funds this week: HDFC Top 200 Fund

Fund snapshot Fund Manager Latest NAV NAV 52 high/low Latest AUM (cr) Type Class Options Min investment Benchmark No. of stocks No. of sectors Expense ratio Exit load Prashant Jain `199.6 `218.7/168.1 `10,537 Open-ended Equity - Diversified Growth & dividend `5,000 BSE 200 66 30 1.8% 1% before 1 year Asset allocation (%) Equity Debt Cash/call Top 5 holdings (%) State Bank of India Infosys Ltd. ITC Ltd. ICICI Bank Ltd. Tata Consultancy Services Ltd. Top 3 sectors (%) Banks Software Consumer Non Durables 22.9 11.9 10.5 6.7 6.5 5.3 5.2 4.4 99.7 0.0 0.2

Reliance Equity Opportunity Fund

Fund snapshot Fund Manager Latest NAV NAV 52 high/low Latest AUM (cr) Type Class Options Min investment Benchmark No. of stocks No. of sectors Expense ratio Exit load Shailesh Raj Bhan `37.9 `37.7/29.3 `3,159 Open-ended Equity - Diversified Growth, Dividend & Bonus `5,000 BSE 100 34 21 1.85% 1% before 1 year Asset allocation (%) Equity Debt Cash/call Top 5 holdings (%) Infosys Ltd. Aventis Pharma Ltd. Divis Labs SBI Trent Top 3 sectors (%) I.T. Healthcare Auto 16.9 16.8 10.4 6.6 5.8 5.8 4.1 3.9 95.3 0.0 4.7

NFO update
Fund Name ICICI Prudential Fixed Maturity Plan Series 63-3 Years Plan M. DSP BlackRock US Flexible Equity Fund Reliance Dual Advantage Fixed Tenure Fund II - Plan E Close 25-Jul 31-Jul 31-Jul Type CE OE CE Class Debt Equity Hybrid

India Infoline Weekly Wrap

Chartbook
Inflation
14 12 10 8 6 4 2 0
Jan-08 Jan-09 Jan-10 Jan-11 May-08 May-09 May-10 May-11 Jan-12 May-12 Sep-08 Sep-09 Sep-10 Sep-11

Interest Rate
Monthly Inflation MFG Products
18 16 14 12 10 8 6 4
Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jul-08 Jul-09 Jul-10 Jul-11 Jul-12

(%)

(%)

10yr Gsec yield 3mth CP rate

5yr AAA bond yield

(2)

IIP and Six core Industries

16 12 8 4 0 (4)
Oct-10 Aug-10 Aug-11 Apr-10 Apr-11 Oct-11 Jun-10 Jun-11 Dec-10 Dec-11 Apr-12 Feb-11 Feb-12

Crude (Brent/ Nymex)

IIP
180 160 140 120 100 80 60 40
Jan-08 Jan-09 Jan-10 Jan-11 Jan-12
Jan-12

(%)

Six core Ind.

(US $)

Nymex Crude

Brent Crude

Jul-08

Jul-09

Jul-10

Jul-11

Currency Movements
100 90 80 70 60 50 40
Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jul-08 Jul-09 Jul-10 Jul-11 Jul-12

Dollar Index
(INR/USD) (INR/JPY)
95 Dollar Index 90 85 80 75 70

(EURO/USD) (INR/GBP)

Jan-08

Jul-08

Jan-09

Jul-09

Jan-10

Jul-10

Jan-11

Jul-11

Source: Bloomberg

Jul-12

30

Jul-12

(8)

20

40

45

50

55

60

65

70

100

10

20

30

40

50

60

70

80

90

PMI

10,000
Dec-10

15,000

20,000

25,000

30,000

35,000

5,000
Jan-08

0
(%)
Jul-08

Apr-99
Feb-11 Apr-11

Chartbook...

Source: Bloomberg

Apr-00
Jan-09

Volatility Index

Sensex PE Band

Apr-01

Apr-02
Jul-09

India Germany

Apr-03
Jun-11 Aug-11 Oct-11 Dec-11 Feb-12 Apr-12
Jan-10

Apr-04

Apr-05
VIX
Jul-10 Jan-11 Jul-11 Jan-12 Jul-12

Apr-06

Euro Zone US

Apr-07

Apr-08

Apr-09

Apr-10

9x

21x

China

Apr-11

17x

5x

13x

Apr-12

200

300

400

500

600

700

800

1,200

1,300

1,400

1,500

1,600

10.00

12.00

14.00

16.00

2.00

4.00

6.00

8.00

(Rs)

PE (x)

Dow Jones

Apr-11 May-11 Jun-11 Jul-11 Aug-11 Sep-11 Oct-11 Nov-11

Jan-08 Jul-08 Jan-09 Jul-09 Jan-10 Jul-10 Jan-11 Jul-11

Nasdaq

PE Comparision

S&P 500

FTSE

US Initial Jobless Claims

DAX

Sensex Earning Estimates

India Infoline Weekly Wrap

Hang Seng*

FY13

Nikkei*

Shanghai Comp

Dec-11 Jan-12 Feb-12 Mar-12

Brazil Bovespa

Mexico Bolsa

FY14

Initial Jobless Claims ('000)

Kospi*

FY13

Taiwan*

Apr-12 May-12 Jun-12 Jul-12

Straits*

Jan-12 Jul-12

Sensex

India Infoline Weekly Wrap

News Recap
The Presidential Polls got over, with Pranab Mukherjee set to win the race to the Rashtrapati Bhavan on a canter. Monsoon rains turned below average for the week ended July 19 after having turned positive in the previous week. Still, Agriculture Minister Sharad Pawar said that there is no drought situation in India as yet and that the Centre is ready for any eventuality on the monsoon front. India's inflation dipped slightly in June, but April's figure was revised higher. Core inflation is better indicator of price trends, RBI Governor Dr. Subbarao said. The Government raised 201112 foodgrain output estimates to a new record while the Food Minister said that the Government might impose stock limits on food items to check spiraling inflation. The UPA received a minor setback after NCP leaders Sharad Pawar and Praful Patel resigned from the Union Cabinet. Consumer confidence in India dropped in Q2 CY12, according to Nielsen. The RBI unveiled a report to review prudential norms on loan restructuring. The Union Cabinet approved 21% import duty on power generation gears to protect domestic industry. The Cabinet also cleared the disinvestment in SAIL besides hiking fair and remunerative price of sugarcane. The PMO decided to speed up project clearance in the Oil & Gas exploration sector. Metal stocks fell after Moody's scaled back its outlook on the global base metal sector. Outlook for Indian infrastructure sector remains negative, according to Fitch. IT spending in India is expected to grow by 16.3% in 2012, as per IDC. Ratan Tata threw his weight behind the reformist Prime Minister Dr. Manmohan Singh amid growing criticism of policy logjam. A fresh labour unrest broke out at Maruti's Manesar plant following violent clashes between workers and management personnel. Maruti shares tumbled 9%. IMF cut global growth forecast citing the lingering Eurozone debt crisis and slower growth in the Emerging Markets. Euro area crisis has reached a critical stage, the IMF added. The US economy grew at 'modest to moderate pace' in June and early July, said the Feds Beige Book. The US economic activity appears to have decelerated, Fed Chairman Ben S. Bernanke said, while reiterating that the central bank is ready to intervene and prop up the US economy if the need arises. Eurozone inflation held at a 16-month low while trade surplus swelled. Global consumer confidence lost further ground in Q2, Nielsen said while German investor confidence was down for a third straight month. China's home prices snapped an eight-month losing steak, prompting the government to say that it will maintain the curbs on the property markets. UK unemployment rate fell in May on Olympic boost while June retail sales were below estimates. UKs annual CPI slowed to a 31-month low in June.

Event Calendar
Period : 23rd 27th July
US Jun Durable Goods Orders (26 Jul) Jun Pending Home Sales YoY (26 Jul) Q2 GDP QoQ Annualized (27 Jul) Q2 Personal Consumption (27 Jun) Food Articles WPI YoY (26 Jul) Primary Articles WPI YoY (26 Jul) Fuel Power Light WPI YoY (26 Jul) HSBC Flash China Manufacturing PMI (22-25 Jul) MNI July Business Condition Survey (27 Jul) Jul Euro-Zone Consumer Confidence (20-23 Jul) Jul PMI Manufacturing (21-24 Jul)

India

China

Euro Zone

IIFL, IIFL Centre, Kamala City, Senapati Bapat Marg, Lower Parel (W), Mumbai 400 013 The information in this newsletter is generally provided from the press reports, electronic media, research, websites and other media. The information also includes information from interviews conducted, analysis, views expressed by our research team. Investors should not rely solely on the information contained in this publication and must make their own investment decisions based on their specific investment objectives and financial position and using such independent advisors as they believe necessary. The materials and information provided by this newsletter are not, and should not be construed as an advice to buy or sell any of the securities named in this newsletter. India Infoline may or may not hold positions in any of the securities named in this newsletter as a part of its business. Past performance is not necessarily an indication of future performance. India Infoline does not assure for accuracy or correctness of information or reports in the newsletter.